While switching channels between Discovery and Music India..i happened to hit a news channel. They announced that the Mumbai Police has cracked the case, Chotta Rajan’s henchmen killed J Dey and the sharp shooters have been arrested from various parts of the country.

As usual they had got somebody from the police and one more person (did not pay attention)..and the very famous anchor said ‘You have said that Chotta Rajan was involved and he paid Rs 5 lakhs for the murder..but did not tell us who engaged Chotta Rajan’.

Mr. Police what are you hiding from us? (in what is now established as the sickeningly shrill anchor voice..).

Amazing..does the media expect the investigation to go on in broad media glare? Or do they expect C Rajan to show them a contract signed for Rs. 20 lakhs with 3 witnesses, signed on a stamp paper deal. Surely if they do that media is likely to do a story on how it is inadequately stamped!!

So happy with my decision to watch Discovery, Music India, BBC entertainment, animal planet, and national geographic! Whale wars are better than the shrill screaming noise channels…who think that the country should be run out of the studios (P Chidambaram’s words, not mine!)…

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I wrote this EVEN BEFORE the issue that if NTPC was priced at Rs. 240, the correct price for a new company should be in the range of Rs. 75, not Rs. 450. Of course many people laughed. N0w there is a new gimmick of merger….none of the actions by this group is helping the cash flow situation of this group. It is making losses in Rcom, the Media companies are still investing. The lucrative Bombay franchisee is seeing intense competition from Tata Power which has a cost of production of Rs. 1.8. Reliance insurance and mutual funds will not make money – there are no more NFOs anymore….God bless the market capitalisation.

Also for me this was a good example – the promoters had taken the shares of Reliance Power at Rs. 16 (not sure). I used to tell my friends the price is Rs. 450, and the value is Rs. 16.

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Like one reader to this blog (Sukumaran had asked will L&T opportunities fund be recommended because unlike Chola this new fund house will have advertising budgets!).

If I were running a pure advisory business keeping in touch with 2-4 fund house schemes is more than enough. This can be done on the basis of organisational branding, performance, range of funds, etc.

There are IFAs, with corpus more than Rs. 30 crores who do business with 2-3 fund houses. However as part of the media there is a COMPULSION to keep in touch with 44 fund houses. All of them will have NFOs, so they will all advertise. This means when a portfolio is being created it is compulsory to say nice things about big advertising fund houses, emerging fund houses who are likely to spend more, theme funds where any logic can be used to justify performance, and create a portfolio with 12 schemes!

Also it is almost impossible to do an article saying “Worst performing fund schemes” or even worse ‘Lousy fund manager who is job trotting’.

Have you seen such an article? Please send me a link…except if it is from MoneyMantra – I have seen it

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Ask a distributor, it is far more attractive to sell mutual funds than sell life insurance products if YOU ARE A OWNER of a distribution business. However if you are a manager who is judged on the quarterly commissions then the life insurance business is better. However to understand this you need to understand ‘compounding’ and trail commission calculation. If you are in the media you have to make your voice shrill and say ‘IRDA is a lobby not a regulator’ or ‘School boys cannot take on Cowboys’ – surely looks sexy .

For the past 55 years LIC paid 40% commissions to its agents. If it was so attractive a business why is it that no self respecting MBA becomes an agent to sell life insurance? After all if you can bring Rs. 1 crore as premium, you can take home Rs. 40 lakhs, correct. LOL. MBA students in ‘G’ grade schools HATE attending a sales interview even if it pays Rs. 5 lakhs. Difficult to reconcile all this data, correct.

Let us get the facts. Is there any life insurance product with 40% commissions? Theoretically yes, but today it hardly sells. Does any media article tell you this? NO.

What is the lowest commission in selling a life insurance product? Assuming the worst in this are is Hdfc Standard life insurance, the minimum commission is (believe it or not) about 1%. Has any media article told you about this? NO.

Have life insurance companies paid settlement claims and kept many children in school, repaid many home loans (and kept families in houses), paid for weddings of children, etc. Has any media article told you about this? No.

Why do so many questions have NO as an answer? Simply because negative news sells far, far, far better than ordinary news or good news. How many people will be excited if a child is kept in school? Not many. How many people will be excited if a teacher beats a child? Maybe many.

After all North East West South is about excitement is it not?

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So I decided to pick a news item which read like this:

” …the firm in its report ..said also pointed to continued EROSION in market leader Nokia’s share, which FELL SUBSTANTIALLY from 55.8% for the year ended June 2009 to 54.1% for the full year…”

Growth in the …Indian market DIPPED to almost ZERO ..from the growth of 6.7%. India’s growth is BELOW GLOBAL RATES for DEC quarter (oops had to add a smiley ). The ‘FLAT’ PERFORMANCE is ..a SHARP CONTRAST to the earlier period..

Nokia’s market share has FALLEN from 75% to about 54% now…while Korean and Indian firms FLOODED the market..Nokia remained COMPARATIVELY UNINTERESTING….

sorry I got sick of doing this. If you are watching the financial media and reading the financial press, chances are you are addicted to financial porn. Be careful when you read the articles which say “Investors got poorer by $ 3 billion last week’ when the market fell, or when you see words like ‘almost zero’, ‘crashed’, ”perished’ , ‘painful slowdown’ ..or when all the kids in our office say ‘India’s Recession’ – when we were growing @ 7% , please keep your MODERATION button on!

You should have been in India when everything was rationed – milk, rice, kerosene, electricity (Bangalore residents please excuse but other parts of India do not have 14 hour power cuts), and the economy was growing at 3-4%. Today the media is much more into sensationalizing – whether it is IPL, or Robin Singh’s inability to speak English, or saying all matches are fixed,…so if you do watch television please keep your moderation button on, AND invert whatever is being said.

For example if you hear that there is a 70% probability of ‘this fund making money’ see what happens if 30% chances of failing ACTUALLY happens. If you think out of 10 investors 7 will gain, see if you are in remaining 3 what happens to you. Whenever you switch on a television there is an advertisement – some you recognize as an ‘ad’ and some which are made to look like a discussion.

A couple of years ago there was a ‘product designing’ competition – a few people were asked to design a mutual fund product which would be a great hit. The ultimate winner designed a product which had 60-70% debt and the balance in equity. The jury (a complete who’s who – 2 fund managers, one ‘independent’ mutual fund website ‘owner’ – not the editor, 1 financial journalist,….etc. However there are 2-3 fund houses WITH EXACTLY THE SAME product – and it does not sell . L O L. So much for experts like us.

So lesson number 1: Media is for entertainment, not for teaching or learning.

Lesson number 2: Remember rule no. 1, but if you still watch, keep tv on mute, or invert everything that you hear.

A group of friends play a game. We switch on a business channel, put it on mute, and provide our own dialogues – its fun.

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Next they may be asked to get a ‘good behavior’ certificate from unit holders – saying I will redeem them only for legitimate purposes. I will not use the proceeds for buying a gift for my girl friend / mistress / ex-wife / future-wife…:). It is quite amazing.

What is a mutual fund supposed to do? Suppose it has to invest in a media company – should it ask:

- Why do you not have an independent board (in India an independent media company is a joke) most of them are big businesses and some make more money from rent than from advertisements.

- what happens if they know that one company paid a bribe of Rs. 25,000 to an octroi clerk because of some documentation mistakes. Should they sell the shares? (Well a company which talks all day about corporate governance did it long ago)

- if they find out that a politician holds shares in a company in which they are investing (and that the shares were given as a part of a bigger bribe to clear a loan or a project?) -Should they sell the shares?

Just attending the meeting and voting (and Menaka Doshi and her sisters asking in a shrill voice – ‘Why did you allow the company to build a jetty in Orissa and endanger our turtles’ ) I really pity the fund manager. He has one more job to do. I have no clue whether all this will add to the overall returns. Nor do I know whether the media persons (or the SEBI employees) invest in mutual funds. That of course is a different story, is it not?

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It beats me completely as to how an industry (leaving out the boss, LIC) has not been able to do one story of successfully settling a claim! If life insurance is bought by people to protect their loved ones – is it not logical that the media should be full of stories on how they settled a claim quickly and put the family back on its feet. Well not a single story. Not yet. And I have spoken to a few life insurance companies.

The other area of regret is projection of the agent! Of course the agent is not spoken at all by any of the advertisements, barring Bajaj. This person is no paragon of virtue – the kind of stories that they can tell is amazing. Many of them specialize in ripping the client, but there are many decent folks too. Mostly it is the case of not telling the client the whole story, but the life insurance industry has never (repeat never) celebrated the ‘good’ agent. Every agent aspires for being the ‘biggest’ agent rarely (or almost never) the best agent. Even companies like Max New York Life which is more dependent on the agency force, has not (never?) spoken about how the ‘agent’ can help the customer ‘find a solution’. Really sad, and I hope somebody from Max is reading this blog . To me the Max route of creating ‘best’ agents is itself looking good – even they are not (not yet I presume?) celebrating the good agent.

So ..what ails the industry? Poor, pathetic and inadequate communication with the end customer! So even if you have a few hundred million rupees as your advertising budget you are not creating enough of an impact. Sad.

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Star Plus is perhaps the greatest cricket expert who has never played for India. Since they know everything about the game, they should be made the non playing captain of the team. Every ball bowled, every word spoken, every catch taken – and of course dropped, every injury is analysed threadbare.

Conclusion: Indian bowlers bowled badly from the Bangladesh score of 51/5 to 220/8. I have no clue how such an analysis is relevant – for get whether useful.(1st day 2nd Test)

Based on some hear say, some notes, some scribbling, Times Now has concluded that Sehwag group and Dhoni group are at loggerheads. That brings us to players like Yuvraj and Harbhajan Singh – both have very poor track records, at least of late. Their job is simple – keep their place in the team (Yuvraj has a batting avg. of 34 vs. 50+ for the other top batsmen). One in a while they do something, but their income (@ Rs. 50 crores) remains intact thanks to the sponsorship. Everybody is happy. God bless.

Now take this stupid media obsession to the mutual fund industry. Jokers keep saying 3 months performance is not good, one year performance is not good – all this makes for good trp but i have no clue about how it helps the retail investor. No great attempt is made to select a good scheme. Forget ‘survival bias’ I have invested only in 2 fund houses (which have survived!!) and in only 4-5 schemes over the past 10 years. No NFO, no IPO, no mid cap, small cap or …any thing dished out by the mutual fund industry. Surely for a couple of quarters (if not more) Franklin India Blue Chip, Hdfc top 200, hdfc equity, prudence, franklin Prima, hdfc capital builder, Templeton Equity Income  fund, hdfc growth fund, templeton growth fund…- surely my dad has got decent returns – beating the index by a nice margin. However quarter on quarter i have no clue whether they were ranked no. 1 or no. 2

http://www.subramoney.com/book-written-by-me/

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One was the head of a big life insurance company, one was the head of a brokerage firm, and one was the head of a big mutual fund. To me the biggest kick in life is when people contradict themselves or make claims which are fantastic sounding, but miles away from reality. Thankfully all 3 of them obliged.

The head of the life insurance company said “people are not shifting from unit linked plans, but the shift is from long term committment to short term committment”. Thus people are shifting from long products like unit linked plans to bank deposits. Now these are difficult to argue against unless you have numbers on your side. The growth of the life insurance business has just changed hands – LIC and Max New York life have imporved their market share at the cost of some of the other players.

The other thing he said was ’2010 will see the importance of the ‘adviser’ and all life insurance companies will spend more on that direction. I find it amusing – the better that an advisor gets, or the more informed a customer gets he moves away from unit linked plans to term insurance. This is not good for the manufacturer or for the distributor. Think of conflict between advising and selling – it is at its peak here. In the same breath he said that the ‘other’ sales channels – like bancassurance, mall insurance, tele insurance, etc. will be very imortant. LOL. Advising is the role of the advisor, pushing products is done by these other channels….sorry sir, did not understand what you said.

The other person was from a brokerage house – equity share broking is one area that the current SEBI chief has not yet touched (of course he has no clue what to do with the media, so like his predecessors he is ignoring the media). He said how the end customer benefits by ‘E-broking’. To the best of my knowledge difference between knowing the broker and dealing with him was a far superior way of investing. E-broking has widened, and deepened the market, but wealth creation stories are from holding, not from trading. The beneficiary of E-broking has been the brokerage houses, banks, nsdl, demat service providers, and perhaps the end user. If he has benefitted, I have not been able to see it . Then he spoke about buying mutual funds through a brokerage house. This is another amazing feature – and am surprised that nobody has yet come out with the total cost of hold and buy strategy of a mf through a brokerage house. Oops it hurts

The third CEO was from a mutual fund – this fund could have been described as a NFO factory, but Dhiren of Valuresearchonline.com used this apt title for Tata Mutual fund, so i will not re-christen this fund house. He said the last decade has seen the top 5 schemes giving 20% returns over the last 10 years, but investors may not have participated. This brings us back to ‘Investment returns vs. Investor returns’. The question is not whether these fund schemes gave such a return, but whether a customer would have invested only in those schemes! The fund houses have bombarded people with new schemes. One of my senior customers whose money I had ‘advised’ to be kept in Icici Prudential Discovery fund was ‘re-advised’ to keep in a infrastructure fund of the same house . More interestingly this CEO also said since these funds have given 20% return over 10 years a clients investment of Rs. 100,000 would have become Rs. 25 to 30 lakhs in 10 years. My excel sheet says it would have become Rs. 515,978.

So for me the year 2010 has started on a humorous note, except that I was watching a personal finance show!

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Similarly for many of today’s writers (including yours truly) the easiest thing to do is to attack the bakra. Catch hold of the agent and say “why are you selling garbage…you limpet?” and he would say…”Sorry this product is designed by……”. So what you cannot sell garbage – did you not read Mint? It says ‘Agents sell garbage’ as long as they are paid their cut.

Let us take a conversation:

Ms. Intellectual: Hey agent you are selling ‘Garbage’

Agent: Sorry Ma’am I am selling a product which people buy.

Ms. I : Oh people do not know what is good for them.

A: but…they ask me for a child plan, retirement plan…

Ms: Only we at Delhi know what is good for them…they do not

A: Ma’am I sell term insurance…is that bad

Ms: Only the government companies have good products…you are selling garbage!

A: Maam Term insurance was introduced in India by Hdfc ..not LIC. Even today Ageon Religare is the cheapest, not LIC

Ms: No, no only government and people like us know what is good for the people..

A: Maam all the products I sell are approved by IRDA, or overseen by SEBI, I have studied in a government college..

Ms. I: I have decided that you are selling garbage, how dare you mere graduate argue with me? I am qualified you know

A: Sorry Ma’am the company whose products I sell also has highly qualified people..and I think they design the product and your IRDA approves it. Then the media advertises it, then websites write about it….then we sell garbage (oops see how influential you are!)

Ms. I: I think people like you should be hung from the nearest post. Only problem is people like Subra will not know what to write. He will have to go back to broking..or really back to accounting and audit. By the way stop selling garbage.

A: Ma’am I only know to sell financial products should I start selling Gillette blades, they are really good I believe..and they do a lot of advertising.

Ms. I : hmmm see you realise that selling garbage does not help. I really like Financial literacy

A: Ma’am the end buyer is not a fool…he knows what he / she is doing

Ms. I: Only if we tell him in a way that he understands..

A: Oh like the government gets excise duty so it allows cigarettes to be sold, or puts the head of Pepsi in its council of advisors, or lets McDonalds spread and create obesity…

Ms. I : Now do not get personal. People know what is good for them so they choose correctly

A: I agree ma’am we sell garbage, but people buy good stuff created by qualified MBAs, CAs, etc. approved by government authorities (Sucheta Dalal says SEBI has to be regulated too!), ..how such good stuff turns to garbage when we sell it beats me. Will you ask somebody to do an article? I will ask IFA galaxy to put it up on their site

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